Which one of the following statements is correct?
A) If the majority of a firm's new customers become repeat customers, then there is a strong argument against extending credit even if the default rate is low.
B) A customer's past payment history reveals little information in relation to his or her future tendency to pay.
C) A suggested policy for offering credit to new customers is to limit the amount of their initial credit purchase.
D) The risk of issuing credit is the same for a new customer as it is for an existing customer.
E) The recommended policy for new customers is to extend an offer of a high credit limit as an enticement to get their business.

Question

Quizplus · Accepted Answer

Limiting the amount of initial credit purchase can help reduce the risk of extending credit to new customers who may not have a proven payment history. The other options are incorrect - A is incorrect because a strong repeat customer base can support extending credit; B is incorrect because past payment history can indicate future payment patterns; D is incorrect because the risk of default is typically higher for new customers; and E is incorrect because extending a high credit limit without assessing creditworthiness can increase the risk of default.

Which One of the Following Statements Is Correct